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Cut and Run: How FP&A Can Shorten the Budgeting Process

This free guide and six-step template can help shorten the budgeting process.DOWNLOAD GUIDE

Only 40 percent of finance professionals find the budgeting process “somewhat valuable,” according to recent research.

So why do companies still create budgets?

According to Nilly Essaides, author of "How to Shorten the Budget Cycle,” companies still need a way to allocate resources at the start of the year for planning purposes. A budget is a roadmap, albeit an unreliable one.

“For many managers, the budget is the way to plan their activities for the coming year, and it’s been the way it’s been done since the 1900s. It’s tough to let it go,” said Essaides, Director of Practitioner Content Development for AFP. “A lot of companies are still very uncomfortable with the concept of dumping the process altogether. Some of it is a response to external need to report expectations” that include bonus compensation considerations.

The guide includes case studies and a six-step template to help companies can get value out of the budgeting process without necessarily eliminating it altogether. “We realize that’s not an option for many organizations,” Essaides said.

Budgets work – up to a point

Essaides believes that traditional budgets do help when done effectively. “What companies need to understand is that the process must become more agile and fluid, and that’s where we see change taking place,” she said. “While companies are likely to continue to budget, there’s a move toward continuous budgeting. Managers can adjust their requests for funds based on market opportunities.”

If a project is failing, leading companies stop funding it, Essaides said. If a new opportunity arises, they make a business case for increased funding. “They shorten the cycle time for creating the budget from an average of six months to a matter of weeks with a top-down approach,” she said.